-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ScjCQbqxgcTi+WYE25sgbg4z8XmheGmBJRUY1X1u2gkmc/arLaeC0oSbB22/QBRY BZ09lmW1z9+UTiOyOWCuVw== 0000950144-96-001086.txt : 19960322 0000950144-96-001086.hdr.sgml : 19960322 ACCESSION NUMBER: 0000950144-96-001086 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960321 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MEDICAL INCOME PROPERTIES 2A LTD PARTNERSHIP CENTRAL INDEX KEY: 0000814433 STANDARD INDUSTRIAL CLASSIFICATION: OPERATORS OF NONRESIDENTIAL BUILDINGS [6512] IRS NUMBER: 592724921 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 033-06122-01 FILM NUMBER: 96536957 BUSINESS ADDRESS: STREET 1: 7000 CENTRAL PKWY STE 850 CITY: ATLANTA STATE: GA ZIP: 30328 BUSINESS PHONE: 4046681080 MAIL ADDRESS: STREET 1: 7000 CENTRAL PARKWAY STREET 2: SUITE 850 CITY: ATLANTA STATE: GA ZIP: 30328 FORMER COMPANY: FORMER CONFORMED NAME: MEDICAL INCOME PROPERTIES 2A LIMITED PARTNERSHIP DATE OF NAME CHANGE: 19900802 10-K 1 MEDICAL INCOME PROPERTIES 2A L.P. 1 SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-K Annual Report Pursuant to Section 13 or 15 (d) of the Securities and Exchange Act of 1934 For the Fiscal Year Ended Commission File Number - ------------------------- ---------------------- December 31, 1995 33-6122-01 MEDICAL INCOME PROPERTIES 2A LIMITED PARTNERSHIP ------------------------------------------------ (Exact Name of Registrant as Specified in its Charter) Delaware 59-2724921 -------- ---------- (State of Organization) (IRS Employer Identification Number) 7000 Central Parkway, Suite 850 Atlanta, GA 30328 ----------------- (Address of Principal Executive Office) (770) 668-1080 -------------- Registrant's Telephone Number, Including Area Code Securities Registered Pursuant to Section 12 (b) of the Act: Name of Each Exchange Title of Each Class on Which Registered ------------------- ------------------- LIMITED PARTNERSHIP UNITS NONE Indicate by check whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Aggregate market value of the voting stock held by non-affiliates of the Registrant is not applicable. The number of limited partnership units outstanding on March 4, 1996 was 18,639. The Prospectus of the Registrant dated October 22, 1986, filed pursuant to Rule 424 (b) under the Securities Act of 1933 is incorporated by reference, to the extent indicated to Part III of this report. 2 MEDICAL INCOME PROPERTIES 2A LIMITED PARTNERSHIP INDEX TO ANNUAL REPORT ON FORM 10-K
Page PART I Item 1: Business 1 Item 2: Properties 2 Item 3: Legal Proceedings 3 Item 4: Submission of Matters to a Vote of Security Holders 3 PART II Item 5: Market for the Registrant's Common Equity and Related Stockholder Matters 3 Item 6: Selected Financial Data 3 Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations 4 Item 8: Financial Statements and Supplementary Data 7 Item 9: Disagreements on Accounting and Financial Disclosure 7 PART III Item 10: Directors and Executive Officers of the Registrant 8 Item 11: Executive Compensation 8 Item 12: Security Ownership of Certain Beneficial Owners and Management 8 Item 13: Certain Relationships and Related Transactions 8 PART IV Item 14: Exhibits, Financial Statement Schedules and Reports on Form 8-K 9 Signatures 11
3 PART I ITEM 1. BUSINESS General Medical Income Properties 2A Limited Partnership (the Partnership), is a Delaware limited partnership which was organized on May 14, 1986. The Partnership is one of a series of three limited partnerships as represented by the registration statement filed with the Securities and Exchange Commission on October 22, 1986 (the Effective Date), providing for the sale of $10,000,000 of limited partnership units (the Units), with an option to increase the offering by an additional $10,000,000. The offering closed on June 2, 1987, upon the sale of 18,639 units for an aggregate purchase price of $18,639,000. The purpose of the Partnership is to engage in the business of acquiring and holding for investment income-producing health care related properties, primarily nursing homes, and operating such properties as skilled and intermediate care nursing homes. As of December 31, 1995 the Partnership owned a 100% interest of four nursing homes, a 54.55% interest in a nursing home in Decatur, Alabama and a 50% interest in two joint venture nursing homes in the Houston, Texas area. The Partnership employed approximately 488 employees as of March 4, 1996. Business Strategy The Partnership intends to hold its real property investments until such time as a sale or other disposition appears to be advantageous. Such factors as potential capital appreciation, industry trends, cash flow and federal income tax consequences to the Limited Partners will be considered before Partnership property dispositions are made. Long Term Care Industry The long term care industry is composed of many facilities offering services to subacute, skilled, assisted living, and personal care residents. The Partnership's nursing homes are considered to be in the skilled segment of the industry, although several of its homes offer subacute services. Subacute services have allowed many providers to expand their services and at the same time become more profitable. In addition, providers have taken advantage of these higher returns to consolidate their operations either through initial public offerings or through merging with one another. Subacute, however, is not for everyone. Many companies have established a different criteria, including minimum population levels, in order to operate a subacute program in a profitable manner. This is necessary due to the shorter lengths of stay of patients and the need to obtain more and more admissions to fill the shorter stay beds. Even with higher costs in the nursing and service departments, nursing home industry subacute care is considered to be more cost effective in caring for patients than hospital care. Historically, nursing homes have derived their revenues from Medicare, Medicaid and private pay patients. In the past few years, the industry has seen an increase in private insurance patients and to a greater extent, contractual services from Health Maintenance Organizations (HMO's) and Preferred Provider Organizations (PPO's). The industry has always faced an increasing challenge in staffing its facilities. This is particularly true with regard to Registered Nurses, Licensed Practical Nurses and Certified Nurse Aides, although depending upon the geographic area, the Partnership competes with hotels, motels and restaurants for other employees, including dietary and housekeeping workers. Approximately fifty percent of Partnership operating costs are composed of employee salaries and benefits. From time to time, the Federal government has proposed increasing the minimum wage. Any increase in the minimum wage would adversely impact nursing home providers and would have to be supported by increases in Medicare and Medicaid reimbursement rates. Furthermore, the Federal government has been discussing these very programs as it looks for ways to down size government. The Medicaid program may be impacted through block grant programs. Such a program would cap the federal funding of the program and should the state wish to retain the current level of services and programs, significant additional funding would have to be found. This is particularly true if the OBRA regulations were not repealed. The Medicare program is being examined for possible changes 1 4 including implementing cost limits on ancillary services (such as therapy programs, equipment and diagnostic services), capital cost reductions, a continued freeze of the routine cost limits and, perhaps, a prospective payment system. The potential impact of such changes, either alone or in combination, cannot be determined at this time. The Partnership owns nursing facilities in the States of Illinois, Texas and Alabama. Each state reimburses nursing facilities on a prospective basis, although Alabama is the only state which bases reimbursement on the nursing facilities' actual cost. Texas and Illinois use average cost derived from all filed cost reports. Texas reimburses nursing facilities on a patient specific need called Texas Index of Level of Effort (TILE). Illinois pays nursing facilities based upon different cost parameters, including paying additional incentives based on facility services provided. Each state has developed a wait and see attitude toward program changes until such time as the Federal government acts. Information regarding industry segments is not applicable for the Partnership business. Seasonality The Partnership's revenue and operating income fluctuate from quarter to quarter and tend to be higher in the first and second quarter of each fiscal year. This seasonality is due primarily to the state Medicaid programs in which the Partnership operates, rate increases and census cycles. SERVICES PROVIDED Routine Services All of the nursing facilities operated by the Partnership are licensed as skilled care facilities by the appropriate regulatory agencies. Routine services include the provision of skilled care services and assistance with activities of daily living, depending upon the needs of each resident. Skilled nursing care is rendered 24 hours per day by registered or licensed nurses and nurses aides. Ancillary Services The Partnership provides a variety of rehabilitative services at its facilities for residents. These services include physical, speech, occupational, and respiratory therapy programs. The Partnership continues to expand these services as the needs of its residents and the requirements of third-party payor programs warrants. In addition, the Partnership has added subacute care programs to several of its facilities. ITEM 2. PROPERTIES As of December 31, 1995, the following properties were owned by the Partnership:
Average Daily Census Date of No. of -------------------- Property Acquisition Beds Description 1995 1994 1993 1992 1991 -------- ----------- ------ ----------- ---- ---- ---- ---- ---- Muscle Shoals, AL. 9/1/87 90 Nursing home 84 84 81 82 84 Shoals, AL. 9/1/87 103 Nursing home 100 101 102 102 102 Oak Crest, AL. 9/1/87 109 Nursing home 94 96 99 99 97 University Manor, IL. 3/1/88 120 Nursing home 114 109 112 117 115 Medical Park 7/1/88 183 Nursing home 174 179 180 181 181 Decatur, AL. (54.55% Interest)
In addition, the Partnership has invested in a joint venture consisting of two nursing homes with Medical Income Properties 2B Limited Partnership:
Average Daily Census Date of No. of Ownership -------------------- Property Acquisition Beds Description % 1995 1994 1993 1992 1991 -------- ----------- ------ ----------- --------- ---- ---- ---- ---- ---- Renaissance Place-Katy, TX. 5/1/88 130 Nursing home 50% 123 113 118 117 114 Renaissance Place-Humble, TX. 5/1/88 120 Nursing home 50% 118 118 117 117 116
2 5 A description of the Partnership's purchase of its properties is disclosed in Notes 1(f), 2, 4, 5 and 6 of the Notes to Financial Statements. ITEM 3. LEGAL PROCEEDINGS There are no material pending legal actions against the Partnership. As noted in the financial statements note 10, however, the Partnership does have certain contingent liabilities. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. PART II ITEM 5. MARKET FOR THE REGISTRANT'S PARTNERSHIP UNITS AND RELATED SECURITY HOLDER MATTERS There is no established public trading market for the Partnership Units. There were 1,786 limited partners as of March 4, 1996. Distributions paid per limited partner unit for each quarter in the last five years are incorporated by reference from Item 6 below. ITEM 6. SELECTED FINANCIAL DATA Selected financial data for the period January 1, 1991 to December 31, 1995 is shown below:
(000's omitted except for per share data and distributions) 1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- Summary of Operations: Total Revenue $ 19,050 17,906 16,607 16,037 14,036 Operating Income $ 1,941 1,994 2,624 2,373 1,422 Net Income $ 1,184 1,206 1,651 1,300 762 Per Share Data: Net Income per Limited Partner Unit $ 59.09 60.20 82.36 64.87 38.02 Financial Condition: Total Assets $ 25,186 24,703 24,479 23,612 22,942 Bonds, Notes and Capitalized Lease Obligations $ 4,241 4,584 4,951 4,977 5,189 Partners' Capital $ 16,260 16,233 16,218 15,319 14,520 Distributions per Limited Partner Unit: First Quarter $ 15.00 12.50 8.75 5.00 -- Second Quarter $ 15.00 15.00 8.75 6.25 -- Third Quarter $ 15.00 15.00 10.00 6.25 -- Fourth Quarter $ 15.00 15.00 10.00 7.50 5.00
3 6 Quarterly Financial data for the period January 1, 1993 to December 31, 1995: (000's omitted)
1995 ------------------------------------------ 1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr. -------- -------- -------- -------- Total Revenue $ 4,881 $ 4,841 $ 4,967 $ 4,361 Income from Operations 747 606 528 60 Net Income (Loss) 591 495 401 (303) 1994 ------------------------------------------ 1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr. -------- -------- -------- -------- Total Revenue $ 4,302 $ 4,412 $ 4,488 $ 4,704 Income from Operations 641 496 476 381 Net Income 425 271 380 130 1993 ------------------------------------------ 1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr. -------- -------- -------- -------- Total Revenue $ 3,970 $ 3,931 $ 4,108 $ 4,598 Income from Operations 555 456 658 955 Net Income 292 236 447 676
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity and Capital Reserves Cash and equivalents balances and marketable securities totaled $3,051,156 at December 31, 1995, an increase of $35,567 from December 31, 1994. Accounts receivable balances during the same period increased $370,200. The Partnership experienced increased accounts receivable balances primarily in Medicare and private payors due to increased Medicare usage and higher ancillary volumes. This increase was partially offset by a decline in the amount of Medicaid receivables due from the State of Illinois. During the year, those receivables decreased $257,000. The Partnership spent $391,040 on capital expenditures in 1995 and expects to spend approximately $500,000 on similar expenditures in 1996. The Partnership had an outstanding certificate of need to construct a fourteen bed addition to its Shoals Nursing Home property which was allowed to lapse during 1995. We expect to submit a request in 1996 to allow for the transfer of approximately 10 beds from the Oak Crest Nursing Home to either the Shoals or Muscle Shoals location. If this project moves forward, the construction funds will come from present cash balances and cash provided by operations and not from additional borrowing. In 1995, the Partnership paid regular distributions to its limited partners of $60.00 per unit. This distribution equaled a 6% return on the initial investment of $1,000 per unit. Although the Partnership expects to make distributions to its limited partners based upon cash flow generated from operations after considering cash required for debt obligations, necessary improvements to its properties and working capital reserves, no assurances can be given that distributions will be made in the future. The Partnership has a $500,000 line of credit available to it should the need arise. At the present time, the Managing General Partner believes the Partnership has adequate working capital and does not believe it will be necessary to borrow additional funds. 4 7 Results of Operations Fiscal Year 1995 Compared to 1994 Net income for the year was $1,184,339, compared to $1,206,438 in 1994. Revenue from patient services increased to $19,017,058 during the year, an increase of 6% over the prior year. The cost of nursing care, including ancillary services rose $965,000 between years due to higher labor costs, ancillary services and supply costs. Temporary labor costs declined $134,000 from the prior year level. Professional care of patients costs by year are:
1995 1994 ---- ---- Salaries and Wages $ 5,515,416 $ 5,114,186 Supplies and Pharmaceuticals 740,854 611,700 Ancillary Services Expense 2,160,552 1,661,797 Social Service and Activities 320,187 310,435 Medical Records 65,715 62,918 Temporary Labor 46,869 180,950 Other Expenses 356,192 298,801 ----------- ----------- $ 9,205,785 $ 8,240,787 =========== ===========
Dietary expenses rose $52,334 due to increased food and supply costs while Household and Plant costs increased $97,124, primarily due to higher labor, supplies and utilities expenses. General and Administrative expenses by year are: Salaries and Wages $ 502,629 $ 453,807 Supplies 54,296 50,556 Insurance 595,953 665,557 Management Fees 950,808 914,238 Cost Reimbursement 136,679 147,110 Property Tax 69,709 55,586 Accounting and Auditing 185,395 184,757 Telephone 52,921 45,568 Travel 43,577 52,404 Other Expenses 298,764 229,196 ----------- ----------- $ 2,890,731 $ 2,798,779 =========== ===========
Insurance costs continue to decline due to improved controls on the workers compensation programs in the State of Alabama. Total other income/expenses, net totaled $756,889 for the year, a $31,065 improvement over the prior year. The earnings of the two Texas properties were substantially higher than the previous year, therefore increasing the Partnership share of joint venture income by $152,754. The minority interest arising from the operation of the Medical Park Nursing Home reflects improved earnings at that facility due to ancillary services utilization. Fiscal Year 1994 Compared to 1993 Net income for the year ended December 31, 1994 was $1,206,438, compared to $1,650,574 for 1993. This decline in earnings was due to sharply higher operating expenses for the care of patients which could not be reflected in increased rates in the current year. These expenditures should be reflected in higher patient care rates in future periods. 5 8 Professional care of patient costs by year are:
1995 1994 ---- ---- Salaries and Wages $ 5,114,186 $ 4,461,047 Supplies and Pharmaceuticals 611,700 478,020 Ancillary Service Expense 1,661,797 897,741 Social Service and Activities 310,435 285,804 Medical Records 62,918 54,084 Temporary Labor 180,950 93,344 Other Expenses 298,801 242,756 ----------- ----------- $ 8,240,787 $ 6,512,796 =========== ===========
Ancillary services include physical, occupational, and speech therapy programs that allow patients to have an improved quality of life and, in some cases, to be discharged to their homes. Expenses for salaries and wages include the cost of several new nursing positions which were added in response to the many regulatory changes being implemented by the various state and federal agencies. In addition, vacation pay was allocated to each department in 1994 instead of being included in Employee Health and Welfare accounts, as it was in previous years. A recap of General and Administrative expenses include:
1994 1993 ---- ---- Salaries and Wages $ 453,807 $ 409,137 Supplies 50,556 41,104 Insurance 665,557 751,997 Management Fees 914,238 864,674 Cost Reimbursement 147,110 137,579 Property Tax 55,586 79,569 Audit and Accounting 184,757 153,545 Telephone 45,568 42,377 Travel 52,404 36,944 Other Expenses 229,196 177,747 ----------- ----------- $ 2,798,779 $ 2,694,653 =========== ===========
The decrease in insurance costs was due to improved controls on the workers compensation insurance programs, particularly in the State of Alabama. Fiscal Year 1993 Compared to 1992 Net income increased in 1993 to $1,650,574, from $1,300,074 during 1992. Net patient service revenue was $16,570,880, an increase of 4% over the previous year, due primarily to higher room and board charges. 6 9 Expenses increased during the year by $320,023 due to general cost increases. The following chart compares the professional care of patients between fiscal years 1993 and 1992:
1993 1992 ---- ---- Salaries and Wages $ 4,461,047 $ 4,384,812 Supplies and Pharmaceuticals 478,020 489,279 Ancillary Service Costs 897,741 890,717 Social Service and Activities 285,804 268,885 Medical Records 54,084 70,492 Temporary Labor 93,344 114,804 Other Expenses 242,756 218,472 ----------- ----------- $ 6,512,796 $ 6,437,461 =========== ===========
Dietary costs increased over the prior year by $39,047 due to higher food cost and increased salaries. Household and plant expenses increased due to higher utility costs of $37,914 and repairs and maintenance costs of $8,975. General and administrative costs totaled $2,694,653, for an increase of $48,136 over 1992. A recap of these expenses include:
1993 1992 ---- ---- Salaries and Wages $ 409,137 $ 390,027 Supplies 41,104 36,125 Insurance 751,977 702,212 Management Fees 864,674 868,550 Cost Reimbursement 137,579 114,791 Property Tax 79,569 107,111 Audit and Accounting 153,545 176,312 Telephone 42,377 41,913 Travel 36,944 30,034 Other expenses 177,747 179,442 ----------- ----------- $ 2,694,653 $ 2,646,517 =========== ===========
Employee health and welfare expenses totaled $1,017,491. These expenses were higher due to employment taxes, health insurance costs and vacation accruals. Interest income totaled $93,388, for an increase of $38,295 due to higher cash balances being maintained. Interest expense was $44,292 lower than 1992 due to lower debt balances and the debt refinancing completed in May 1993. Provider fees include amounts paid to the Alabama and Illinois Medicaid programs to enhance the Medicaid rates. During the year ended 1993, the Illinois program changed its provider fee and payment formula and the changes resulted in a net decrease in fees paid. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements and supplementary data required by Regulation S-X are included in this Form 10-K commencing on page F-1. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There were no changes of auditors for the Partnership during the fiscal years 1995 and 1994. 7 10 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The Partnership has no directors or executive officers. QualiCorp Management, Inc. (QMI), a Delaware corporation, is the Managing General Partner of the Partnership. The directors and executive officers of QMI as of December 31, 1995 are listed below. Directors serve for one year or until the next annual meeting of stockholders of QMI or until their successors are elected and qualified. QMI is a wholly-owned subsidiary of QualiCorp, Inc., a Louisiana corporation. The directors and executive officers of QualiCorp, Inc. are also listed below. The relationship of the Managing General Partner to its Affiliates is described under the caption "Conflicts of Interest" on pages 38 through 42 of the Prospectus, which pages are specifically incorporated by reference herein. The directors and executive officers of QMI and QualiCorp, Inc. are as follows:
Name Age Principal Occupation During the Past Five Years ---- --- ----------------------------------------------- John M. DeBlois 58 Chairman of the Board since 1981. Chairman of the Board of Qualicare, Inc., a hospital management company, from the mid 1970's to 1983. John H. Stoddard 53 President and Chief Financial Officer from July 1, 1988. Senior Vice President with Safecare Health Services, Inc., a health care management company, from September 1, 1985 to March 1988. From May 1983 to August 1985, Treasurer, Continental Health Services, a health care management company. Prior to May 1993, was Vice President - Finance with Qualicare, Inc. Wanda J. Honea 38 Vice President - Investor Services from May 1990. Office relocation consultant from October 1989 through April 1990. From October 1988 to October 1990, Office Administrator for Hunton & Williams, a law firm. Prior to 1988, administrative assistant at Hansell & Post.
Mr. DeBlois and Mr. Stoddard are Directors of QMI and Qualicorp, Inc. There are no family relationships among any of the above officers and/or directors. ITEM 11. EXECUTIVE COMPENSATION The Partnership has no officers or directors. No director or officer of the Managing General Partner received any remuneration from the Partnership during the three years ended December 31, 1995. The Partnership paid to Qualicorp, Inc., the parent of QMI, the Managing General Partner, $136,679 as reimbursement for administrative expenses (primarily salaries) incurred during the year. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT No person or group is known by the Partnership to own beneficially more than 5% of the outstanding Units of the Partnership. No executive officers or directors of QMI owned any Units in the Partnership at December 31, 1995. Qualicorp, Inc., parent of QMI, the Partnership's Managing General Partner, held 42 units in the Partnership at December 31, 1995. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS For the five years ended December 31, 1995, QualiCorp, Inc., the parent of QMI, charged the Partnership for administrative services $136,679, $147,110, $137,579, $114,791, and $105,746. 8 11 Under the Partnership Agreement, the General Partners are entitled to participate in distributions of the Partnership's Cash Flow as described under the caption "Management Compensation" at pages 32 through 36 of the Prospectus. Cash distributions of $84,175, $80,671, $52,606, $35,074, and $7,016 were made to the General Partners during 1995, 1994, 1993, 1992, and 1991, respectively. The General Partners also share in the Partnership's net profits and net losses. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this report: 1. Financial statements and supplementary information appear on a separate section of this Form 10-K commencing on pages referenced below: MEDICAL INCOME PROPERTIES 2A LIMITED PARTNERSHIP
Page ---- Independent Auditor's Report F-1 Financial Statements Balance Sheets F-2 Statements of Operations F-3 Statements of Partners' Capital F-4 Statements of Cash Flows F-5 Notes to Financial Statements F-7 Information Accompanying the Basic Financial Statements Independent Auditor's Report on Additional Information F-18 Schedule VIII - Valuation and Qualifying Accounts and Reserves for Allowances for Doubtful Accounts F-19 Schedule X - Consolidated Supplementary Income Statement Information F-20 Schedule XI - Real Estate and Accumulated Depreciation F-21
All schedules other than those indicated have been omitted as the required information is inapplicable or the information is presented in the financial statements or related notes. THE TEXAS JOINT VENTURE
Page ---- Independent Auditor's Report F-22 Financial Statements Balance Sheets F-23 Statements of Operations F-24 Statements of Partners' Capital F-25 Statements of Cash Flows F-26 Notes to Financial Statements F-28 Information Accompanying the Basic Financial Statements Independent Auditor's Report on Additional Information F-35 Schedule VIII - Valuation and Qualifying Accounts and Reserves for Allowance for Doubtful Accounts F-36 Schedule X - Consolidated Supplementary Income Statement Information F-37 Schedule XI - Real Estate and Accumulated Depreciation F-38
All schedules other than those indicated have been omitted as the required information is inapplicable or the information is presented in the financial statements or related notes. 9 12 2. Exhibits 3-A. The prospectus of the Partnership dated October 22, 1986, as amended October 23, 1986, October 29, 1986 and supplemented on February 26, 1987 and filed pursuant to Rule 424(b) is hereby incorporated herein by reference. 3-B. Amended and restated agreement of Limited Partnership set forth as Exhibit A to the prospectus, incorporated herein by reference. (b) No report on Form 8-K has been filed during the fourth quarter of the fiscal year ended December 31, 1995. 10 13 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. MEDICAL INCOME PROPERTIES 2A LIMITED PARTNERSHIP QUALICORP MANAGEMENT, INC. Managing General Partner By: /s/ John H. Stoddard Date: March 15, 1996 ----------------------------------------- John H. Stoddard President, Director, Chief Financial Officer and Principal Accounting Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Name Position Date ---- -------- ---- /s/ John M. DeBlois Chairman of the Board March 15, 1996 - --------------------------- John M. DeBlois /s/ John H. Stoddard President, Director, March 15, 1996 - --------------------------- Chief Financial Officer John H. Stoddard and Principal Accounting Officer
11 14 SELF & MAPLES, P.A. CERTIFIED PUBLIC ACCOUNTANTS ONEONTA, ALABAMA 35121 THOMAS E. SELF, C.P.A. AMERICAN INSTITUTE DON MAPLES, C.P.A. OF CERTIFIED PUBLIC ACCOUNTANTS B. MARTIN COPELAND, C.P.A. ------- ALABAMA SOCIETY CONNIE T. HARVEY, C.P.A. OF CERTIFIED PUBLIC ACCOUNTANTS RANDY M. JOHNSTON, C.P.A. ------- ROGER D. LOGGINS, C.P.A. 1601 2ND AVENUE EAST MARK S. SIMS, C.P.A. P.O. BOX 489 LINDA ROMBERG YORK, C.P.A. ONEONTA, ALABAMA 35121 GWIN E. DAVIS, P.A. ------- ROYCE E. GARGUS, P.A. TELEPHONE: (205) 625-3472 TELECOPIER: (205) 274-0182 INDEPENDENT AUDITOR'S REPORT To the Partners Medical Income Properties 2A Limited Partnership We have audited the balance sheets of Medical Income Properties 2A Limited Partnership as of December 31, 1995 and 1994 and the related statements of operations, partners' capital and cash flows for each of the years in the three-year period ended December 31, 1995. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on the financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Medical Income Properties 2A Limited Partnership as of December 31, 1995 and 1994 and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 1995 in conformity with generally accepted accounting principles. /s/ Self & Maples, P.A. - ----------------------- Self & Maples, P.A. January 26, 1996 Oneonta, Alabama F-1 15 MEDICAL INCOME PROPERTIES 2A LIMITED PARTNERSHIP BALANCE SHEETS DECEMBER 31, 1995 AND 1994
1995 1994 ----------- ----------- ASSETS ------ Current assets Cash and equivalents $ 889,401 $ 864,318 Marketable securitites 2,161,755 2,151,271 Accounts receivable, net of allowance for doubtful accounts of $190,934 in 1995 and $168,203 in 1994 2,634,141 2,263,954 Estimated settlements due from third parties 485,609 363,385 Prepaid expenses and other assets 110,667 240,729 ----------- ----------- Total current assets 6,281,573 5,883,657 Investment in joint ventures 4,718,713 4,628,512 Property, plant and equipment, net of accumulated depreciation 13,394,031 13,756,481 Deferred financing costs, net of accumulated amortization of $39,294 in 1995 and $24,514 in 1994 37,326 52,106 Due from affiliates 754,471 382,517 ----------- ----------- Total assets $25,186,114 $24,703,273 =========== =========== LIABILITIES AND PARTNERS' CAPITAL --------------------------------- Current liabilities Current portion of long term debt $ 337,075 $ 338,739 Accounts payable 870,895 640,042 Accrued payroll and payroll taxes 259,497 238,086 Accrued vacation 207,362 196,686 Accrued insurance 65,028 226,018 Accrued management fees 79,234 131,274 Patient deposits and trust liabilities 97,569 92,510 Other accrued expenses 92,522 114,579 Estimated settlements due to third parties 453,166 112,772 Due to affiliates 243,814 101,526 ----------- ----------- Total current liabilities 2,706,162 2,192,232 Bonds, notes and capital lease obligations 3,903,921 4,245,657 ----------- ----------- Total liabilities 6,610,083 6,437,889 Venture partners' minority interest 2,315,986 2,031,996 ----------- ----------- Partners' capital Limited partners 16,250,393 16,225,603 General partners 9,652 7,785 ----------- ----------- Total partners' capital 16,260,045 16,233,388 ----------- ----------- Total liabilities and partners' capital $25,186,114 $24,703,273 =========== ===========
The accompanying notes are an integral part of these statements. F-2 16 MEDICAL INCOME PROPERTIES 2A LIMITED PARTNERSHIP STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
1995 1994 1993 ----------- ----------- ----------- Revenues Net patient service revenue $19,017,059 $17,872,338 $16,570,880 Other revenue 32,618 34,056 36,480 ----------- ----------- ----------- Total revenue 19,049,677 17,906,394 16,607,360 ----------- ----------- ----------- Operating expenses Professional care of patients 9,205,785 8,240,787 6,512,796 Dietary 1,609,770 1,557,436 1,492,315 Household and plant 1,714,594 1,617,470 1,475,210 General and administrative 2,890,731 2,798,779 2,694,653 Employee health and welfare 919,299 925,354 1,017,491 Depreciation and amortization 768,270 772,176 791,288 ----------- ----------- ----------- Total operating expenses 17,108,449 15,912,002 13,983,753 ----------- ----------- ----------- Operating income 1,941,228 1,994,392 2,623,607 ----------- ----------- ----------- Other income (expenses) Interest income 157,839 152,591 93,388 Interest expense (419,354) (380,587) (363,374) Provider fees (550,681) (540,739) (666,405) Minority interest in consolidated joint venture (324,895) (246,667) (294,399) Partnership share of unconsolidated joint venture income 380,202 227,448 257,757 ----------- ----------- ----------- Total other income (expenses) (756,889) (787,954) (973,033) ----------- ----------- ----------- Net income $ 1,184,339 $ 1,206,438 $ 1,650,574 =========== =========== =========== Net income attributable to limited partners (93%) $ 1,101,435 $ 1,121,987 $ 1,535,034 Net income attributable to general partners (7%) 82,904 84,451 115,540 ----------- ----------- ----------- $ 1,184,339 $ 1,206,438 $ 1,650,574 =========== =========== =========== Net income per weighted average limited partnership unit outstanding $ 59.09 $ 60.20 $ 82.36 =========== =========== ===========
The accompanying notes are an integral part of these statements. F-3 17 MEDICAL INCOME PROPERTIES 2A LIMITED PARTNERSHIP STATEMENTS OF PARTNERS' CAPITAL FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
Limited Partners --------------------------- General Units Amount Partners Total ------ ----------- ---------- ----------- Partners' capital (deficit) at December 31, 1992 $18,639 $15,375,359 $ (56,214) $15,319,145 Distributions to partners ($37.50 per limited partnership unit outstanding) - (698,962) (52,606) (751,568) Net income - 1,535,034 115,540 1,650,574 ------- ----------- --------- ----------- Partners' capital at December 31, 1993 18,639 16,211,431 6,720 16,218,151 Distributions to partners ($57.50 per limited partnership unit outstanding) - (1,071,744) (80,671) (1,152,415) Net income - 1,121,987 84,451 1,206,438 Unrealized loss on marketable securities available for sale - (36,071) (2,715) (38,786) ------- ----------- --------- ----------- Partners' capital at December 31, 1994 18,639 16,225,603 7,785 16,233,388 Distributions to partners ($60.00 per limited partnership unit outstanding) - (1,118,339) (84,175) (1,202,514) Net income - 1,101,435 82,904 1,184,339 Unrealized gain on marketable securities available for sale - 41,694 3,138 44,832 ------- ----------- --------- ----------- Partners' capital at December 31, 1995 $18,639 $16,250,393 $ 9,652 $16,260,045 ======= =========== ========= ===========
The accompanying notes are an integral part of these statements. F-4 18 MEDICAL INCOME PROPERTIES 2A LIMITED PARTNERSHIP STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
1995 1994 1993 ----------- ----------- ----------- Cash flows from operating activities: Cash received from patient care $18,869,199 $17,291,338 $16,331,974 Interest and dividends received 159,582 125,965 93,388 Other operating receipts 32,618 34,056 36,480 Cash paid to suppliers and employees (16,177,204) (14,858,368) (13,373,171) Interest paid (419,354) (380,587) (363,374) Provider fees (550,681) (540,739) (666,405) ----------- ----------- ----------- Net cash provided by operations 1,914,160 1,671,665 2,058,892 ----------- ----------- ----------- Cash flows from investing activities: Purchases of marketable securities (755,533) (2,169,477) - Proceeds from sales of marketable securities 783,981 - - Acquisitions of property (391,040) (353,775) (75,399) Distributions from joint ventures 290,000 189,999 90,000 ----------- ----------- ----------- Net cash provided (used) by investing activities (72,592) (2,333,253) 14,601 ----------- ----------- ----------- Cash flows from financing activities: Distributions to partners (1,202,514) (1,152,415) (751,568) Payments on long-term debt and lease obligations (343,400) (367,156) (24,816) Net related party transactions (229,666) (150,708) 125,368 Distributions to venture partners (40,905) (86,355) (131,805) ----------- ----------- ----------- Net cash used by financing activities (1,816,485) (1,756,634) (782,821) ----------- ----------- ----------- Net increase (decrease) in cash and equivalents 25,083 (2,418,222) 1,290,672 Cash and equivalents, beginning of year 864,318 3,282,540 1,991,868 ----------- ----------- ----------- Cash and cash equivalents, end of year $ 889,401 $ 864,318 $ 3,282,540 =========== =========== ===========
The accompanying notes are an integral part of these statements. F-5 19 MEDICAL INCOME PROPERTIES 2A LIMITED PARTNERSHIP STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
1995 1994 1993 ----------- ----------- ----------- Reconciliation of net income to net cash provided by operating activities: Net income $ 1,184,339 $ 1,206,438 $ 1,650,574 ----------- ----------- ----------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 768,270 772,176 791,288 (Increase) decrease in interest receivable, securities premium amortization and securities discount amortization 1,743 (26,626) - Partnership share of unconsolidated joint venture (income) loss (380,202) (227,448) (257,757) Minority interest in consolidated joint venture income (loss) 324,895 246,667 294,399 Provision for losses on accounts receivable 22,731 21,058 (28,236) (Increase) decrease in accounts receivable (388,761) (670,429) 152,850 (Increase) decrease in third party receivables (122,224) (1,184) (285,475) (Increase) decrease in prepaid expenses and other assets 130,062 (93,140) 41,184 Increase (decrease) in accounts payable and accrued expenses 32,913 374,598 (221,890) Increase (decrease) in third party payables 340,394 69,555 (78,045) ----------- ----------- ----------- Total adjustments 729,821 465,227 408,318 ----------- ----------- ----------- Net cash provided by operations $ 1,914,160 $ 1,671,665 $ 2,058,892 =========== =========== =========== Supplemental schedule of noncash investing and financing activities: Unrealized gain (loss) on marketable securities available for sale 44,832 (38,786) - Note payable used to pay existing debt - - 3,883,835
The accompanying notes are an integral part of these statements. F-6 20 MEDICAL INCOME PROPERTIES 2A LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Organization Medical Income Properties 2A Limited Partnership (the Partnership) is a Delaware limited partnership formed on May 14, 1986 that is engaged in the business of acquiring, operating and holding for investment purposes, income-producing, health care related properties, primarily nursing homes. The Partnership is one of a series of three partnerships as represented by the Partnership Prospectus (Prospectus) dated October 22, 1986, providing for the sale of 10,000 units at $1,000 per unit (with an option to increase to 20,000 units per partnership). The Partnership's first closing on the sale of units was December 9, 1986. The offering closed on June 2, 1987. For the period May 15, 1986 (inception) to August 31, 1987, the Partnership was in the development stage. On September 1, 1987, the Partnership began acquiring property. The general partners are QualiCorp Management, Inc. (a wholly-owned subsidiary of QualiCorp, Inc.) and QualiCorp Capital, Inc. (b) Allocation of Net Profits and Net Losses Net profits and net losses shall be determined and allocated as of December 31 of each year, as follows: - Net profits (losses) (exclusive of net profits (losses) attributable to the sale or disposition of Partnership properties) are allocated 93% to the limited partners and 7% to the general partners. - Net profits attributable to the sale or disposition of a Partnership property shall be allocated as follows: - First, to limited partners with negative balances in their capital accounts in proportion to such negative balances, to the extent of the total of such negative balances; - Second, 1% to the general partners and 99% to the limited partners until the capital account of each limited partner is equal to his capital investment; and - Third, the balance, if any, 85% to the limited partners and 15% to the general partners. F-7 21 MEDICAL INCOME PROPERTIES 2A LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS - Net losses attributable to the sale or disposition of a Partnership property shall be allocated in a manner similar to above, except that limited and general partner accounts would be reduced pro rata to the amount of their respective capital investments, then, pro rata to zero, and for any remaining loss, 93% to the limited partners and 7% to the general partners. (c) Cash Distributions Cash distributions shall be made quarterly within 45 days after the end of the quarter. Cash flow shall be distributed 93% to the limited partners and 7% to the general partners. Sale or financing proceeds shall be distributed first to creditors and then to the limited partners to the extent of their original capital contribution and then the remainder shall be distributed 85% to the limited partners and 15% to the general partners. (d) Per Unit Information Limited partnership information per unit is based on units outstanding of 18,639 in 1995, 1994 and 1993. (e) Patient Service Revenue Patient service revenue is recorded at the nursing homes' established rates with contractual adjustments ($6,182,176 in 1995, $4,915,980 in 1994, and $3,180,670 in 1993), provision for uncollectible accounts, bad debts ($22,731 in 1995, $21,058 in 1994, and $(28,236) in 1993) and other discounts deducted to arrive at net patient service revenue. Net patient revenue includes amounts estimated by management to be reimbursable by Medicare, Medicaid and other third-party programs under the provisions of cost and prospective payment reimbursement formulas in effect. Amounts received under these programs are generally less than the established billing rates of the nursing homes and the difference is reported as a contractual adjustment and deducted from gross revenue. The nursing homes recognize currently estimated final settlements due from or to third-party programs. F-8 22 MEDICAL INCOME PROPERTIES 2A LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS Final determination of amounts earned is subject to audit by the intermediaries. Differences between estimated provisions and final settlement will be reflected as charges or credits to operating revenues in the year the cost reports are finalized. (f) Property, Plant and Equipment Property, plant and equipment is stated at cost. Items capitalized under capital lease obligations are recorded at their fair market value at the inception of the lease. Depreciation of the buildings is provided over their estimated useful lives of thirty years on the straight-line method. Equipment and other personal property are depreciated over five to seven years on the straight-line method. (g) Income Taxes Taxable income is allocated to the individual partners and, therefore, no income taxes have been provided for in these financial statements. (h) Cash Equivalents Policy For the purposes of the statement of cash flows, the Partnership considers all highly liquid debt instruments with an original maturity of three months or less to be cash equivalents. (i) Uninsured Cash Balances The Partnership maintains cash balances in several banks. Cash accounts at banks are insured by the FDIC for up to $100,000. Amounts in excess of insured limits were approximately $380,063 at December 31, 1995 and $2,668,102 at December 31, 1994. The 1995 amount includes the total of commingled funds discussed in Note 7., since the amount in excess of FDIC limits related to these funds is not determinable. (j) Marketable Securities The classification of marketable securities is determined at the date of purchase. Gains or losses on the sale of securities are recognized on a specific identification basis. Marketable securities represent an investment of excess funds as a part of the Partnership's cash management policies. These securities are considered to be available for sale under Statement of Financial Accounting Standards No. 115 and are, thus, stated at fair value. Unrealized gains and losses are F-9 23 MEDICAL INCOME PROPERTIES 2A LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS recognized as a component of partners' capital as is required by SFAS No. 115. (k) Uses of Estimates Management uses estimates and assumptions in preparing financial statements. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Note 2. ACQUISITIONS On September 1, 1987, the Partnership acquired Muscle Shoals Nursing Home, Oak Crest Nursing Home, and Shoals Nursing Home located in Alabama for $6,625,000 plus capitalized acquisition costs and fees of $165,612. In 1988 an additional $344,631 of acquisition costs and fees were capitalized. While the transaction is recorded as a purchase, the property was subject to a capitalized lease obligation (see Note 6) of $1,685,000. Title is held by a governmental entity until the lease obligation expires in 2008, at which time title passes to the Partnership. In 1993 the mortgage associated with this capitalized lease was repaid with proceeds of a new mortgage note (see Note 6). The lease continues at $1 per year until the lease expires. On March 1, 1988, the Partnership acquired Edwardsville West Nursing Home, now known as University Manor, located in Illinois for $4,200,000 plus capitalized acquisition fees and costs of $311,738. The property was subject to Industrial Revenue Bonds outstanding of $1,269,723. On July 1, 1988, the Partnership acquired 54.55% of Medical Park Nursing Home (The Alabama Joint Venture) located in Alabama for $2,782,050 plus capitalized acquisition costs of $206,893. Medical Income Properties 2B Limited Partnership (MIP2B) purchased the remaining 45.45% of Medical Park. The assets and liabilities of Medical Park have been consolidated in the financial statements of the Partnership with a minority interest in 45.45% of the net assets recorded. Medical Park's equity at December 31, 1995 and 1994 was $5,097,502 and $4,452,599, respectively, and it had net income of $714,840, $542,722 and $647,742 for the years ended December 31, 1995, 1994 and 1993, respectively. The acquisitions have been accounted for under the purchase method of accounting. Consequently, only operations subsequent to the acquisition date have been included in the accompanying financial statements. F-10 24 MEDICAL INCOME PROPERTIES 2A LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS Note 3. MARKETABLE SECURITIES Marketable securities consist of U.S. Treasury securities. The following schedule summarizes marketable securities activity for the years ended December 31, 1995 and 1994:
1995 1994 ---- ---- Beginning balance, amortized cost $2,190,057 $ - Purchase of marketable securities 755,533 2,857,634 Redemption of investments (783,981) (688,157) Net amortization of premiums and accretion of discounts (5,900) 20,580 ---------- ---------- Amortized cost 2,155,709 2,190,057 Gross unrealized loss 6,046 (38,786) ---------- ---------- Fair value $2,161,755 $2,151,271 ========== ==========
The maturities of investment securities at December 31, 1995 were as follows: Due in one year or less $1,401,675 Due in two years or less 754,034 ---------- $2,155,709 ==========
Note 4. INVESTMENT IN JOINT VENTURES The Partnership has invested in two joint ventures with MIP2B, an affiliated limited partnership. The Alabama Joint Venture The Alabama Joint Venture includes only Medical Park which is accounted for as a purchase and is consolidated in these financial statements as described in Note 2 above. The Texas Joint Venture The Texas Joint Venture is accounted for under the equity method. On May 1, 1988 the Partnership purchased 50% of the Renaissance Place - Katy Nursing Home located in Texas for $2,736,250 plus capitalized acquisition costs and fees of $254,645. Also, on the same date, the Partnership purchased 50% of Renaissance Place - Humble Nursing Home located in Texas for $2,243,750 plus capitalized acquisition costs and fees of $114,406. F-11 25 MEDICAL INCOME PROPERTIES 2A LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS The condensed balance sheet information for the investment in joint venture as of December 31, 1995 and 1994 and operating statement information for each of the years in the three-year period ending December 31, 1995 is as follows:
Katy 1995 1994 ---- ---- ---- Current assets $ 1,684,094 $ 1,411,011 Long term assets 5,048,138 4,898,053 ----------- ----------- Total assets $ 6,732,232 $ 6,309,064 =========== =========== Current liabilities 684,328 610,922 Long term liabilities - - Equity 6,047,904 5,698,142 ----------- ----------- Total liabilities and equity $ 6,732,232 $ 6,309,064 =========== =========== Partnership's investment at December 31, 1995 and 1994 $ 3,023,952 $ 2,849,071 =========== ===========
1995 1994 1993 ---- ---- ---- Revenues $ 4,985,129 $ 3,700,538 $ 3,291,225 Expenses 4,362,005 3,505,169 3,038,817 ----------- ----------- ----------- Net income $ 623,124 $ 195,369 $ 252,408 =========== =========== =========== Humble 1995 1994 ------ ---- ---- Current assets $ 1,140,926 $ 1,424,629 Long term assets 3,651,762 3,540,311 ----------- ----------- Total assets $ 4,792,688 $ 4,964,940 =========== =========== Current liabilities 703,933 681,728 Long term liabilities 691,850 752,347 Equity 3,396,905 3,530,865 ----------- ----------- Total liabilities and equity $ 4,792,688 $ 4,964,940 =========== =========== Partnership's investment at December 31, 1995 and 1994 $ 1,698,453 $ 1,765,433 =========== ===========
F-12 26 MEDICAL INCOME PROPERTIES 2A LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS
Humble (con't) 1995 1994 1993 ------ ---- ---- ---- Revenues $ 3,664,088 $ 3,373,417 $ 3,107,004 Expenses 3,526,809 3,113,890 2,843,900 ----------- ----------- ----------- Net income $ 137,279 $ 259,527 $ 263,104 =========== =========== ===========
Note 5. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment is recorded at cost and consists of the following at December 31, 1995 and 1994:
1995 1994 ---- ---- Land $ 493,528 $ 482,000 Buildings and improvements 10,141,958 10,031,300 Furniture and equipment 2,076,727 1,715,532 Property under capitalized lease 6,550,539 6,642,882 ----------- ----------- Total 19,262,752 18,871,714 Accumulated depreciation (5,868,721) (5,115,233) ----------- ----------- Net property plant and equipment $13,394,031 $13,756,481 =========== ===========
Note 6. DEBT OBLIGATIONS Debt obligations consisted of the following at December 31, 1995 and 1995:
1995 1994 ---- ---- Mortgage notes secured by interest in capitalized lease with interest at prime plus 1% (9.5% at December 31, 1995 and December 31, 1994) payable in 60 payments of $22,728 plus interest through April 26, 1998, with a balloon payment due May 26, 1998 $ 3,386,439 $ 3,659,173 Industrial Revenue Bonds secured by real estate, payable at a variable rate of interest (8.225% at December 31, 1995 and 7.285% at December 31, 1994) with monthly principal and interest payments of $11,020 through April 1, 2005. The interest rate is adjusted every May 1 and November 1. 854,557 915,939
F-13 27 MEDICAL INCOME PROPERTIES 2A LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS Capitalized leases on various pieces of minor equipment payable monthly at interest rates from 9% to 10% - 9,284 ----------- ----------- 4,240,996 4,584,396 Less amounts due in one year or less 337,075 338,739 ----------- ----------- $ 3,903,921 $ 4,245,657 =========== ===========
The aggregate annual maturities of bonds and notes payable for the succeeding five fiscal years are as follows: 1996 $ 337,075 1997 342,571 1998 2,916,775 1999 82,278 2000 89,307 Thereafter 472,990 ---------- $4,240,996 ==========
The Partnership leases certain property, plant and equipment under a capital lease. The mortgage associated with this capital lease obligation was repaid in 1993 (see Note 2). The capital lease expires in 2008. Principal payments in various amounts are payable monthly under the minor equipment leases. The mortgage note is secured by all real estate owned by the Partnership. The General Partner of MIP2A has guaranteed the debt, as well as pledged its stock and partnership interest. The management company (See Note 9) has also guaranteed the debt and entered into a negative pledge agreement whereby they will not pledge, transfer or encumber their stock while the loan is outstanding. All management fees are subordinate to the debt. Note 7. RELATED PARTY TRANSACTIONS QualiCorp, Inc. charged the Partnership $136,679 in 1995, $147,110 in 1994 and $137,579 in 1993 for administrative expenses (primarily salaries). As a result of the consolidation of Medical Park as described in Note 2. above, amounts due to The Alabama Joint Venture from MIP2B are included in the amounts due from affiliates. Details of the amounts due from affiliates at December 31 are as follows: F-14 28 MEDICAL INCOME PROPERTIES 2A LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS
1995 1994 ---- ---- Due from affiliates of the general partner $ 371,954 - Due from MIP2B 382,517 382,517 ---------- ---------- $ 754,471 $ 382,517 ========== ==========
Details of the amounts due to affiliates at December 31 are as follows:
1995 1994 ---- ---- Due to QualiCorp, Inc. $ 31,358 $ 17,679 Due to The Texas Joint Venture 212,456 83,847 ---------- ---------- $ 243,814 $ 101,526 ========== ==========
During the year, the General Partners established a pooled investment account in which the General Partners and the partnerships in which they act as general partners could participate. This account was used by those entities to invest overnight cash balances, and borrow funds when an entity needed temporary access to funds. Each entity received its share of interest earned monthly, and was charged interest on any funds borrowed. The Articles of Limited Partnership of the partnerships involved state that no General Partner shall have the authority to cause those partnerships to make loans other than in connection with the purchase, sale or disposition of partnership property. The Articles of Limited Partnership of those partnerships also state that the partnerships' funds may not be commingled with any other entities' funds except as necessary for the operation of those partnerships. At December 31, 1995, the Partnership had loaned $371,954 to the other entities, and had earned interest of $33,229 from this arrangement. Note 8. INCOME TAXES No provision for income taxes is made in the financial statements since taxable income is reported in the income tax returns of its partners. Differences between the net income as reported in the financial statements and Federal taxable income arise from the nature and timing of certain revenue and expense items. The following is a reconciliation of reported net income and Federal taxable income: F-15 29 MEDICAL INCOME PROPERTIES 2A LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS
1995 1994 1993 ---- ---- ---- Net income as reported $ 1,184,339 $ 1,206,438 $ 1,650,574 Adjustments: Depreciation differences 34,742 60,405 42,550 Insurance deductible (76,360) 76,360 Bad debt reserve 71,255 10,571 (49,402) Vacation accrual 21,768 23,613 18,092 Nondeductible meals, and entertainment 27,867 12,725 8,832 ----------- ----------- ----------- Federal taxable income $ 1,263,611 $ 1,313,752 $ 1,747,006 =========== =========== =========== Federal taxable income per limited partnership unit outstanding $63.05 $65.55 $87.17 =========== =========== ===========
Note 9. CONTRACTUAL AGREEMENTS In 1988, the Partnership entered into management agreements whereby the Manager is required to perform certain services at each of the nursing facilities. Each of the agreements had an initial five-year term with one additional five-year option that was exercised in 1993. Fees were based on 6% of gross collected operating revenues through June 30, 1992. Thereafter they were based on 5% of gross collected operating revenues, but not less than $816,000 in a calendar year and were increased by an inflation factor after 1992. The Manager has a right of first refusal to match a bona fide offer made by an outside party to purchase or lease each of the nursing facilities. The management agreements, as amended, contained a termination clause. The management agreements were amended on January 1, 1995. The amendments call for fixed monthly management fees totaling $79,234 with a cost of living factor equal to the greater of 4% per annum or the increase in the Consumer Price Index or such other measure mutually agreeable to the parties. The agreements expire December 31, 1998. The termination on sale clauses were amended to base the fees on a sum equal to the discounted present value of the monthly management fees as of the date of termination of the agreements times the number of months remaining in the management agreements discounted to the date of termination at an annual interest rate of ten percent (10%). Management fees charged to the Partnership were $950,808 in 1995, $914,238 in 1994, and $864,674 in 1993. F-16 30 MEDICAL INCOME PROPERTIES 2A LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS Note 10. CONTINGENCY On May 1, 1990, the Texas Joint Venture, of which the Partnership owns 50%, began self insuring its workmen's compensation claims for two nursing home facilities located in Texas. Accrued liabilities have been estimated to cover all asserted and unasserted claims and assessments and funds have been escrowed to cover such claims. The Partnership maintains insurance or reserves which it believes are adequate to meet the needs of the Partnership. While the Partnership has been named as a defendant in several lawsuits, nothing has come to the attention of the Partnership which leads it to believe that it is exposed to a risk of material loss not covered by insurance or reserves. Note 11. RENTALS UNDER OPERATING LEASES The Partnership leases certain minor equipment under various operating leases. The following is a schedule by years of minimum future rentals on operating leases as of December 31, 1995: 1996 $ 7,146 1997 1,851 -------- Total minimum future rentals $ 8,997 ========
Note 12. MAJOR SOURCES OF REVENUE The Partnership provides patient care services under various third party agreements. The principal sources of revenue under these contracts are derived primarily through the Medicaid and Medicare programs, as well as contracts with private pay patients who do not qualify for assistance from the other programs. The percentage of the Joint Venture's income from each of these sources for the years ended December 31, 1995, 1994, and 1993 is as follows:
1995 1994 1993 ---- ---- ---- Private pay patients 16.18% 17.73% 22.12% Medicaid 65.72% 64.55% 67.12% Medicare 18.10% 17.72% 10.76% ------ ------ ------ Total 100.00% 100.00% 100.00% ====== ====== ======
The percentage attributable to private pay patients includes only amounts due for services where the primary payer is a private source. The Medicaid and Medicare percentages include amounts due from those programs as well as the patient's financial responsibility incurred under these contracts. F-17 31 SELF & MAPLES, P.A. CERTIFIED PUBLIC ACCOUNTANTS ONEONTA, ALABAMA 35121 THOMAS E. SELF, C.P.A. AMERICAN INSTITUTE DON MAPLES, C.P.A OF CERTIFIED PUBLIC ACCOUNTANTS B. MARTIN COPELAND, C.P.A. ------- ALABAMA SOCIETY CONNIE T. HARVEY, C.P.A. OF CERTIFIED PUBLIC ACCOUNTANTS RANDY M. JOHNSTON, C.P.A. ------- ROGER D. LOGGINS, C.P.A. 1601 2ND AVENUE EAST MARK S. SIMS, C.P.A. P.O. BOX 489 LINDA ROMBERG YORK, C.P.A. ONEONTA, ALABAMA 35121 GWIN E. DAVIS, P.A. ------- ROYCE E. GARGUS, P.A. TELEPHONE: (205) 625-3472 TELECOPIER: (205) 274-0182 INDEPENDENT AUDITOR'S REPORT ON ADDITIONAL INFORMATION To the Partners Medical Income Properties 2A Limited Partnership Our report on our audits of the basic financial statements of Medical Income Properties 2A Limited Partnership for 1995 appears on page 1. Those audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The Schedule of Valuation and Qualifying Accounts and Reserves for Allowances for Doubtful Accounts, Schedule of Consolidated Supplementary Income Statement Information, and Schedule of Real Estate and Accumulated Depreciation are presented for purposes of additional analysis and are not required parts of the basic financial statements. Such information has been subjected to the auditing procedures applied to the audits of the basic financial statements, and in our opinion, is fairly stated in all material respects in relation to the financial statements taken as a whole. /s/ Self & Maples, P.A. - ----------------------- Self & Maples, P.A. January 26, 1996 Oneonta, Alabama F-18 32 MEDICAL INCOME PROPERTIES 2A LIMITED PARTNERSHIP SCHEDULE VIII VALUATION AND QUALIFYING ACCOUNTS AND RESERVES FOR ALLOWANCES FOR DOUBTFUL ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
1995 1994 1993 --------- --------- --------- Balance at beginning of year $ 168,203 $ 147,145 $ 175,381 Charged to patient service revenue (93,597) (59,198) (35,626) Write-offs 116,328 80,256 7,390 --------- --------- --------- Balance at end of year $ 190,934 $ 168,203 $ 147,145 ========= ========= =========
F-19 33 MEDICAL INCOME PROPERTIES 2A LIMITED PARTNERSHIP SCHEDULE X CONSOLIDATED SUPPLEMENTARY INCOME STATEMENT INFORMATION FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
1995 1994 1993 ----------- ----------- ----------- Professional care of patients Salaries and wages $ 5,515,416 $ 5,114,186 $ 4,461,047 Ancillary service expenses 2,160,552 1,661,797 897,741 Supplies and pharmaceuticals 740,854 611,700 478,020 Temporary labor 46,869 180,950 93,344 General and administrative Salaries and wages 502,629 453,807 409,137 Accounting and auditing 185,395 184,757 153,545 Insurance 595,953 665,557 751,977 Property tax 69,709 55,586 79,569 Management fees 950,808 914,238 864,674 Cost reimbursement 136,679 147,110 137,579 Dietary Food cost 748,440 726,976 741,225 Household and plant Repairs and maintenance 210,971 210,299 171,838 Utilities 482,949 445,174 450,093 Depreciation $ 753,489 $ 757,395 $ 758,973 =========== =========== ===========
F-20 34 MEDICAL INCOME PROPERTIES 2A LIMITED PARTNERSHIP SCHEDULE XI REAL ESTATE AND ACCUMULATED DEPRECIATION FOR THE YEAR ENDED DECEMBER 31, 1995
INITIAL COST COSTS CAPITALIZED GROSS AMOUNT AT WHICH CARRIED TO PARTNERSHIP(A) SUBSEQUENT TO AS OF DECEMBER 31, 1995(B) ACQUISITION BUILDING AND CARRYING BUILDING AND DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS IMPROVEMENTS COST LAND IMPROVEMENTS TOTAL - ----------------------- ------------ ----- ------------ ----------- -------- ------- ------------- --------- MUSCLE SHOALS $ 413,890 $ 55,610 $ 2,227,047 $ 268,059 $113,945 $ 55,610 $ 2,609,051 $ 2,664,661 SHOALS 609,244 44,636 2,412,436 459,468 126,526 44,636 2,998,430 3,043,066 OAK CREST 331,111 56,316 2,083,684 210,735 104,160 56,316 2,398,579 2,454,895 UNIVERSITY MANOR 854,557 82,000 4,407,718 389,728 82,000 4,797,446 4,879,446 MEDICAL PARK (54.55% 2,032,194 400,000 5,424,540 396,144 400,000 5,820,684 6,220,684 INTEREST) ---------- -------- ----------- ---------- -------- -------- ----------- ----------- $4,240,996 $638,562 $16,555,425 $1,724,134 $344,631 $638,562 $18,624,190 $19,262,752 ========== ======== =========== ========== ======== ======== =========== =========== LIFE ON WHICH DEPRECIATION IN LATEST STATEMENT OF ACCUMULATED DATE OF DATE OPERATION IS DEPRECIATION CONSTRUCTION ACQUIRED COMPUTED ------------ ------------ --------- ------------ MUSCLE SHOALS $ 856,484 1974/1986 09/01/87 27.5 YEARS SHOALS 982,776 1966/1968 09/01/87 27.5 YEARS OAK CREST 783,210 1961/1968 09/01/87 27.5 YEARS UNIVERSITY MANOR 1,398,448 1984 03/01/88 40 YEARS MEDICAL PARK (54.55% INTEREST) 1,847,803 1969/1980 07/01/88 27.5 YEARS ---------- $5,868,721 ==========
(A) The initial cost to the Partnership represents the original purchase price of the properties. (B) The aggregate cost of real estate owned at December 31, 1995 for Federal Income tax purposes was approximately $19,262,752. (C) Reconciliation of real estate owned at December 31, 1995, 1994, and 1993:
1995 1994 1993 ----------- ----------- ----------- Balance at beginning of period $18,871,714 $18,517,939 $18,442,539 Additions 391,038 353,775 75,400 Reductions 0 0 0 ----------- ----------- ----------- Balance at end of period $19,262,752 $18,871,714 $18,517,939 =========== =========== =========== (D) Reconciliation of accumulated depreciation: Balance at beginning of period $ 5,115,233 $ 4,357,837 $ 3,599,864 Depreciation expense 753,488 757,396 757,973 Reductions 0 0 0 ----------- ----------- ----------- Balance at end of period $ 5,868,721 $ 5,115,233 $ 4,357,837 =========== =========== ===========
F-21 35 SELF & MAPLES, P.A. CERTIFIED PUBLIC ACCOUNTANTS ONEONTA, ALABAMA 35121 THOMAS E. SELF, C.P.A. AMERICAN INSTITUTE DON MAPLES, C.P.A. OF CERTIFIED PUBLIC ACCOUNTANTS B. MARTIN COPELAND, C.P.A. ----------- ALABAMA SOCIETY CONNIE T. HARVEY, C.P.A. OF CERTIFIED PUBLIC ACCOUNTANTS RANDY M. JOHNSTON, C.P.A. -------- ROGER D. LOGGINS, C.P.A. 1601 2ND AVENUE EAST MARK S. SIMS, C.P.A. P.O. BOX 489 LINDA ROMBERG YORK, C.P.A. ONEONTA, ALABAMA 35121 GWIN E. DAVIS, P.A. -------- ROYCE E. GARGUS, P.A. TELEPHONE: (205) 625-3472 TELECOPIER: (205) 274-0182 INDEPENDENT AUDITOR'S REPORT To the Partners The Texas Joint Venture We have audited the balance sheets of The Texas Joint Venture as of December 31, 1995 and 1994 and the related statements of operations, partners' capital and cash flows for each of the three years in the three-year period ended December 31, 1995. These financial statements are the responsibility of the Joint Venture's management. Our responsibility is to express an opinion on the financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The Texas Joint Venture as of December 31, 1995 and 1994 and the results of its operations and its cash flows for each of the three years in the three-year period ended December 31, 1995 in conformity with generally accepted accounting principles. /s/ Self & Maples, P.A. January 26, 1996 Oneonta, Alabama F-22 36 THE TEXAS JOINT VENTURE BALANCE SHEETS DECEMBER 31, 1995 AND 1994
1995 1994 ----------- ----------- ASSETS Current assets Cash and equivalents $ 447,196 $ 750,715 Marketable securities 1,409,670 1,366,550 Accounts receivable, net of allowance for doubtful accounts of $132,796 in 1995 and $56,941 in 1994 722,378 644,988 Estimated settlements due from third parties 202,244 25,109 Prepaid expenses and other assets 43,532 48,278 ----------- ----------- Total current assets 2,825,020 2,835,640 Property, plant and equipment, net of accumulated depreciation 8,110,133 8,253,992 Due from affiliates 576,998 166,318 Deferred financing costs, net of accumulated amortization of $13,651 in 1995 and $8,366 in 1994 12,769 18,054 ----------- ----------- Total assets $11,524,920 $11,274,004 =========== =========== LIABILITIES AND PARTNERS' CAPITAL Current liabilities Current portion of long term debt $ 60,600 $ 65,280 Accounts payable 588,225 550,919 Accrued payroll and payroll taxes 139,197 117,452 Accrued vacation 93,309 70,029 Accrued insurance 200,952 332,367 Accrued management fees 31,379 28,063 Patient deposits and trust liabilities 117,005 120,181 Other accrued expenses 157,594 8,359 ----------- ----------- Total current liabilities 1,388,261 1,292,650 Notes payable and capital lease obligations 691,850 752,347 ----------- ----------- Total liabilities 2,080,111 2,044,997 ----------- ----------- Partners' capital 9,444,809 9,229,007 ----------- ----------- Total liabilities and partners' capital $11,524,920 $11,274,004 =========== ===========
The accompanying notes are an integral part of these statements. F-23 37 THE TEXAS JOINT VENTURE STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1995 1994 1993 ------------ ------------ ----------- Revenues Net patient service revenue $ 8,647,019 $ 7,072,940 $ 6,396,559 Other revenue 2,198 1,015 1,670 ------------ ------------ ----------- Total revenue 8,649,217 7,073,955 6,398,229 ------------ ------------ ----------- Operating expenses Professional care of patients 4,812,691 3,604,449 2,897,958 Dietary 616,733 586,512 562,729 Household and plant 618,775 571,882 522,911 General and administrative 1,063,756 1,051,234 1,070,068 Employee health and welfare 355,508 324,545 340,860 Depreciation and amortization 450,189 449,049 426,583 ------------ ------------ ----------- Total operating expenses 7,917,652 6,587,671 5,821,109 ------------ ------------ ----------- Operating income 731,565 486,284 577,120 ------------ ------------ ----------- Other income (expenses) Interest income 107,160 39,215 656 Interest expense (78,322) (70,603) (62,264) ------------ ------------ ----------- Total other income (expense) 28,838 (31,388) (61,608) ------------ ------------ ----------- Net income $ 760,403 $ 454,896 $ 515,512 ============ ============ ===========
The accompanying notes are an integral part of these statements. F-24 38 THE TEXAS JOINT VENTURE STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
1995 1994 1993 ------------ ------------ ------------ Cash flows from operating activities: Cash received from patient care $8,414,019 $7,066,092 $6,355,909 Interest received 91,364 - 656 Other operating receipts 2,198 1,015 1,670 Cash paid to suppliers and employees (7,362,426) (5,972,586) (5,433,112) Interest paid (78,322) (70,603) (62,264) ---------- ---------- ---------- Net cash provided by operations 1,066,833 1,023,918 862,859 ---------- ---------- ---------- Cash flows from investing activities: Purchase of property (301,045) (352,677) (64,622) Purchases of marketable securities (503,438) (1,381,702) - Sales of marketable securities 489,988 - - ---------- ---------- ---------- Net cash used by investing activities (314,495) (1,734,379) (64,622) ---------- ---------- ---------- Cash flows from financing activities: Payments on long-term debt and lease obligations (65,177) (71,908) (62,517) Distributions to partners (580,000) (379,998) (180,000) Net related party transactions (410,680) 55,651 (4,843) ---------- ---------- ---------- Net cash used by financing activities (1,055,857) (396,255) (247,360) ---------- ---------- ---------- Net increase (decrease) in in cash and equivalents (303,519) (1,106,716) 550,877 Cash and equivalents, beginning of year 750,715 1,857,431 1,306,554 ---------- ---------- ---------- Cash and equivalents, end of year $ 447,196 $ 750,715 $1,857,431 ========== ========== ==========
The accompanying notes are an integral part of these statements. F-25 39 THE TEXAS JOINT VENTURE STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
1995 1994 1993 ----------- ----------- ------------ RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES Net income $ 760,403 $ 454,896 $ 515,512 ---------- ---------- --------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 450,189 449,049 426,583 Provision for losses on accounts receivable 75,855 16,294 (63,100) (Increase) decrease in accounts receivable (131,720) (26,942) 22,127 (Increase) in interest receivable, securities premium amortization, and securities discount accretion (15,796) (39,215) - (Increase) decrease in third party receivables (177,135) 3,800 323 (Increase) in prepaid expenses and other assets 4,746 (2,972) (17,818) Increase (decrease) in accounts 100,291 169,008 (20,768) ---------- ---------- --------- Total adjustments 306,430 569,022 347,347 ---------- ---------- --------- Net cash provided by operations $1,066,833 $1,023,918 $ 862,859 ========== ========== ========= Supplemental schedule of noncash investing and financing activities: Unrealized gain (loss) on marketable securities available for sale 35,399 (28,015) - Note paid with proceeds of new debt - - (909,250) New debt used to pay off existing note - - 909,250 Securities valuation allowance (35,399) 28,015 -
The accompanying notes are an integral part of these statements. F-26 40 THE TEXAS JOINT VENTURE STATEMENTS OF PARTNERS' CAPITAL FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 MEDICAL INCOME PROPERTIES LIMITED PARTNERSHIPS
2A 2B TOTAL ------------ ------------ ------------ Partners' capital at December 31, 1992 $ 4,423,306 $ 4,423,306 $ 8,846,612 Distributions to partners (90,000) (90,000) (180,000) Net income 257,756 257,756 515,512 ------------ ------------ ------------ Partners' capital at December 31, 1993 4,591,062 4,591,062 9,182,124 Distributions to partners (189,999) (189,999) (379,998) Net income 227,448 227,448 454,896 Unrealized loss on marketable securities available for sale (14,007) (14,008) (28,015) ------------ ------------ ------------ Partners' capital at December 31, 1994 4,614,504 4,614,503 9,229,007 Distributions to partners (290,000) (290,000) (580,000) Net income 380,202 380,201 760,403 Unrealized gain on marketable securities available for sale 17,699 17,700 35,399 ------------ ------------ ------------ Partners' capital at December 31, 1995 $ 4,722,405 $ 4,722,404 $ 9,444,809 ============ ============ ============
The accompanying notes are an integral part of these statements. F-27 41 THE TEXAS JOINT VENTURE NOTES TO FINANCIAL STATEMENTS Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Organization The Texas Joint Venture was formed on April 29, 1988, and is engaged in the business of acquiring, operating and holding for investment purposes, income-producing, health care related properties, primarily nursing homes. The joint venture partners are Medical Income Properties 2A Limited Partnership and Medical Income Properties 2B Limited Partnership. Each partner owns 50% of the Joint Venture. Both partners are part of a series of three Delaware limited partnerships as represented by a Partnership Prospectus dated October 22, 1986. The Texas Joint Venture currently owns and operates two nursing homes in Texas. (b) Allocation of Net Profits and Net Losses Net profits and net losses are shared equally by the partners. (c) Cash Distributions Cash distributions are made quarterly within 45 days after the end of the quarter. Cash flow shall be distributed equally to the partners. Sale or financing proceeds will be distributed first to creditors and then to the partners equally. (d) Patient Service Revenue Patient service revenue is recorded at the nursing homes' established rates with contractual adjustments ($4,015,882 in 1995, $2,929,956 in 1994 and $2,140,792 in 1993), provision for uncollectible accounts, (bad debt expense of ($75,855) in 1995, $16,294 in 1994 and ($63,100) in 1993) and other discounts deducted to arrive at net patient service revenue. Net patient revenue includes amounts estimated by management to be reimbursable by Medicare, Medicaid and other third-party programs under the provisions of cost and prospective payment reimbursement formulas in effect. Amounts received under these programs are generally less than the established billing rates of the nursing homes and the difference is reported as a contractual adjustment and deducted from gross revenue. The nursing homes recognize currently estimated final settlements due from or to third party programs. Final determination of amounts earned is subject to audit by the intermediaries. Differences between estimated provisions and F-28 42 THE TEXAS JOINT VENTURE NOTES TO FINANCIAL STATEMENTS final settlement will be reflected as charges or credits to operating revenues in the year the cost reports are finalized. (e) Property, Plant and Equipment Property, plant and equipment are stated at cost. Depreciation of the buildings is provided over their estimated useful lives of thirty years on the straight-line method. Equipment and other personal property are depreciated over five to seven years on the straight-line method. (f) Income Taxes Taxable income is allocated to the partners and, therefore, no income taxes have been provided for in these financial statements. (g) Cash Equivalents Policy For the purposes of the statements of cash flows, the Joint Venture considers all highly liquid debt instruments with an original maturity of three months or less to be cash equivalents. (h) Uninsured Cash Balances The Joint Venture maintains cash balances in several banks. Cash accounts at banks are insured by the FDIC for up to $100,000. Amounts in excess of insured limits were approximately $274,391 at December 31, 1995 and $1,413,713 at December 31, 1994. The 1995 amount includes the total of commingled funds discussed in Note 8., since the amount in excess of FDIC limits related to these funds is not determinable. (i) Marketable Securities The classification of marketable securities is determined at the date of purchase. Gains or losses on the sale of securities are recognized on a specific identification basis. Marketable securities represent an investment of excess funds as a part of the Joint Venture's cash management policies. These securities are considered to be available for sale under Statement of Financial Accounting Standards No. 115 and are, thus, stated at fair value. Unrealized gains and losses are recognized as a component of partners' capital as is required by SFAS No. 115. F-29 43 THE TEXAS JOINT VENTURE NOTES TO FINANCIAL STATEMENTS (j) Uses of Estimates Management uses estimates and assumptions in preparing financial statements. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Note 2. ACQUISITIONS On May 1, 1988, the Joint Venture purchased Renaissance Place - Katy Nursing Home located in Texas for $5,472,500 plus capitalized acquisition costs and fees of $509,290. The seller took back a note for $300,000 due May 1, 1992, that has subsequently been paid. On May 1, 1988, the Joint Venture purchased Renaissance Place - Humble Nursing Home located in Texas for $4,487,500 plus capitalized acquisition costs and fees of $228,812. Note 3. MARKETABLE SECURITIES Marketable securities consist of U.S. Treasury securities. The following schedule summarizes marketable securities activity for the years ended December 31, 1995 and 1994.
1995 1994 ---- ---- Beginning balance, amortized cost $1,394,565 $ - Purchase of marketable securities 503,438 1,381,702 Redemption of investments (489,988) - Net amortization of premiums and accretion of discounts (5,729) 12,863 ---------- ---------- Amortized cost 1,402,286 1,394,565 Gross unrealized gain (loss) 7,384 (28,015) ---------- ---------- Fair value $1,409,670 $1,366,550 ========== ========== The maturities of investment securities at December 31, 1995 were as follows: Due in one year or less $ 900,363 Due in two years or less 501,923 ---------- $1,402,286 ==========
F-30 44 THE TEXAS JOINT VENTURE NOTES TO FINANCIAL STATEMENTS Note 4. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consisted of the following at December 31:
1995 1994 ---- ---- Land $ 950,000 $ 950,000 Buildings and improvements 9,525,253 9,321,281 Furniture and equipment 1,118,289 991,778 Property under capital leases - 29,436 ----------- ----------- Total 11,593,542 11,292,495 Accumulated depreciation (3,483,409) (3,038,503) ----------- ----------- Net property plant and equipment $ 8,110,133 $ 8,253,992 =========== ===========
Note 5. NOTES PAYABLE AND CAPITALIZED LEASE OBLIGATIONS Notes payable and capitalized leases at December 31 are as follows:
1995 1994 ---- ---- Mortgage note with a variable rate of interest (9.5% at December 31, 1995 and December 31, 1994) with monthly principal and interest payments of $5,050 through April 26, 1998, with a balloon payment due May 26, 1998. $ 752,450 $ 813,050 Capitalized leases on various pieces of minor equipment payable monthly at interest rates from 9% to 16.86% - 4,577 ---------- ---------- 752,450 817,627 Less amounts due in one year or less 60,600 65,280 ---------- ---------- $ 691,850 $ 752,347 ========== ==========
The aggregate annual maturities of notes payable and capitalized lease obligations are as follows: 1996 $ 60,600 1997 60,600 1998 631,250 --------- $ 752,450 =========
The mortgage note is secured by all real estate owned by the Joint Venture, as well as the real estate owned by The Alabama Joint Venture. Both the Joint Venture and The Alabama Joint Venture are jointly owned by the Medical Income Properties 2A Limited F-31 45 THE TEXAS JOINT VENTURE NOTES TO FINANCIAL STATEMENTS Partnership (MIP2A) and the Medical Income Properties 2B Limited Partnership (MIP2B). The General Partner of MIP2A and MIP2B has guaranteed the debt, as well as pledged its stock and partnership interest. The management company (See Note 6) has also guaranteed the debt and entered into a negative pledge agreement whereby it will not pledge, transfer or encumber its stock while the loan is outstanding. All management fees are subordinate to the debt. Note 6. CONTRACTUAL AGREEMENTS On May 1, 1988, the Joint Venture entered into a management agreement whereby the Manager is required to perform certain services. The agreement had an initial five-year term with one additional five-year option that was exercised in 1993. Fees were based on 6% of gross collected operating revenues through June 30, 1992. Thereafter they were based on 5% of gross collected operating revenues, but not less than $324,000 in a calendar year and were increased by an inflation factor after 1992. These fees are subordinated to the outstanding mortgage debt (See Note 5). The Manager has a right of first refusal to match a bona fide offer made by an outside party to purchase or lease the nursing home. The management agreement, as amended, contained a termination clause. The management agreement was amended on January 1, 1995. The amendment calls for a fixed monthly management fee of $31,379 with a cost of living factor equal to the greater of 4% per annum or the increase in the Consumer Price Index or such other measure mutually agreeable to the parties. The agreement expires December 31, 1998. The termination on sale clause was amended to base the fee on a sum equal to the discounted present value of the monthly management fee as of the date of termination of the agreement times the number of months remaining in the management agreement discounted to the date of termination at an annual interest rate of ten percent (10%). Management fees charged to the Joint Venture were $376,548 in 1995, $362,065 in 1994, and $343,325 in 1993. Note 7. INCOME TAXES No provision for income taxes is made in the financial statements since taxable income is reported in the tax returns of the partners. Differences between the net income as reported in the financial statements and Federal taxable income arise from the nature and timing of certain revenue and expense items. The following is a reconciliation of reported net income and Federal taxable income. F-32 46 THE TEXAS JOINT VENTURE NOTES TO FINANCIAL STATEMENTS
1995 1994 1993 ---- ---- ---- Net income as reported $ 760,403 $ 454,896 $ 515,512 Adjustments: Depreciation differences 56,349 74,970 61,501 Bad debt reserve 75,856 16,294 (63,100) Nondeductible travel and entertainment 9,770 6,430 3,583 Accrued insurance (80,000) - 80,000 Vacation accrual 23,280 15,272 (2,715) ---------- --------- ---------- Federal taxable income $ 845,658 $ 567,862 $ 594,781 ========== ========= ==========
Note 8. RELATED PARTY TRANSACTIONS Details of the amounts due from affiliates at December 31 are as follows:
1995 1994 Due from MIP2A $ 212,456 $ 83,847 Due from MIP2B 210,631 82,471 Due from affiliates of the general partner 153,911 - ---------- ---------- Due from affiliates $ 576,998 $ 166,318 ========== ==========
During the year, the General Partners established a pooled investment account in which the General Partners and the partnerships in which they act as general partners could participate. This account was used by those entities to invest overnight cash balances, and borrow funds when an entity needed temporary access to funds. Each entity received its share of interest earned monthly, and was charged interest on any funds borrowed. The Articles of Limited Partnership of the joint venture partners state that no General Partner shall have the authority to cause the joint venture partners to make loans other than in connection with the purchase, sale or disposition of partnership property. The Articles of Limited Partnership also state the joint venture partners' funds may not be commingled with any other entities' funds except as necessary for the operation of the partnerships. At December 31, 1995, the Joint Venture had loaned $153,911 to the other entities, and had earned interest of $24,238 from this arrangement. F-33 47 THE TEXAS JOINT VENTURE NOTES TO FINANCIAL STATEMENTS Note 9. CONTINGENCY On May 1, 1990, the Joint Venture began self insuring its workmen's compensation claims for its two nursing home facilities. Accrued liabilities have been estimated to cover all asserted and unasserted claims and assessments and funds have been escrowed to cover such claims. The Joint Venture maintains insurance or reserves that it believes are adequate to meet the needs of the Joint Venture. While the Joint Venture Partners have been named as a defendant in several lawsuits, nothing has come to the attention of the Joint Venture that leads it to believe that it is exposed to a risk of material loss not covered by insurance or reserves. The real estate owned by The Texas Joint Venture is mortgaged as security on debt incurred by a joint venture partner - Medical Income Properties 2A Limited partnership (MIP2A). This debt is also secured by all other real estate owned by MIP2A. The total outstanding debt secured by all these properties is $4,138,889. Note 10. MAJOR SOURCES OF REVENUE The Joint Venture provides patient care services under various third party agreements. The principal sources of revenue under these contracts are derived primarily through the Medicaid and Medicare programs, as well as contracts with private pay patients who do not qualify for assistance from the other programs. The percentage of the Joint Venture's income from each of these sources for the years ended December 31, 1995, 1994, and 1993 is as follows:
1995 1994 1993 ---- ---- ---- Private pay patients 18.05% 19.42% 21.97% Medicaid 38.99% 47.81% 59.29% Medicare 42.96% 32.77% 18.74% ------ ------ ------ Total 100.00% 100.00% 100.00% ====== ====== ======
The percentage attributable to private pay patients includes only amounts due for services where the primary payer is a private source. The Medicaid and Medicare percentages include amounts due from those programs as well as the patient's financial responsibility incurred under these contracts. F-34 48 SELF & MAPLES, P.A. CERTIFIED PUBLIC ACCOUNTANTS ONEONTA, ALABAMA 35121 [LETTERHEAD] INDEPENDENT AUDITOR'S REPORT ON ADDITIONAL INFORMATION To the Partners The Texas Joint Venture Our report on our audits of the basic financial statements of The Texas Joint Venture for 1995 appears on page 1. Those audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The Schedule of Valuation and Qualifying Accounts and Reserves for Allowances for Doubtful Accounts, Schedule of Consolidated Supplementary Income Statement Information, and Schedule of Real Estate and Accumulated Depreciation are presented for purposes of additional analysis and are not required parts of the basic financial statements. Such information has been subjected to the auditing procedures applied to the audits of the basic financial statements, and in our opinion, is fairly stated in all material respects in relation to the financial statements taken as a whole. /s/ Self & Maples, P.A. January 26, 1996 Oneonta, Alabama F-35 49 THE TEXAS JOINT VENTURE SCHEDULE VIII VALUATION AND QUALIFYING ACCOUNTS AND RESERVES FOR ALLOWANCES FOR DOUBTFUL ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1995 1994 1993 ---------- ---------- ----------- Balance at beginning of year $ 56,941 $ 40,647 $ 103,747 Charged to patient service revenues (32,477) (51,472) (70,688) Write-offs 108,332 67,766 7,588 ---------- ---------- ----------- Balance at end of year $ 132,796 $ 56,941 $ 40,647 ========== ========== ===========
F-36 50 THE TEXAS JOINT VENTURE SCHEDULE X CONSOLIDATED SUPPLEMENTARY INCOME STATEMENT INFORMATION FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1995 1994 1993 ------------ ------------- ------------- Professional care of patients Nursing salaries and wages $ 2,469,846 $ 2,197,347 $ 1,928,210 Ancillary services expense 1,714,698 940,266 426,238 Supplies 151,705 107,170 95,450 Temporary labor 83,851 32,084 176,642 General and administrative Salaries and wages 207,708 192,944 172,124 Accounting and auditing 64,745 69,999 74,227 Insurance 13,436 48,076 136,501 Property tax 237,917 223,764 220,810 Management fees 376,548 362,065 343,325 Dietary Food 291,648 279,660 266,058 Household and plant Repairs and maintenance 103,388 73,199 54,541 Utilities 165,204 175,535 171,572 ------------ ------------- ------------- Depreciation $ 444,905 $ 443,765 $ 423,501 ============ ============= =============
F-37 51 THE TEXAS JOINT VENTURE SCHEDULE XI REAL ESTATE AND ACCUMULATED DEPRECIATION FOR THE YEAR ENDED DECEMBER 31, 1995
INITIAL COST COSTS CAPITALIZED GROSS AMOUNT AT WHICH CARRIED TO PARTNERSHIP(A) SUBSEQUENT TO AS OF DECEMBER 31, 1995(B) ACQUISITION BUILDING AND CARRYING BUILDING AND DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS IMPROVEMENTS COST LAND IMPROVEMENTS TOTAL - ------------------------ ------------ ---------------------- ------------------------ --------------------------------------- RENAISSANCE PLACE-KATY $ 0 $650,000 $4,822,500 $466,184 $509,290 $650,000 $ 5,797,974 $ 6,447,974 RENAISSANCE PLACE-HUMBLE 752,450 300,000 4,187,500 429,256 228,812 300,000 4,845,568 5,145,568 -------- --------------------- --------------------- -------------------------------------- $752,450 $950,000 $9,010,000 $895,440 $738,102 $950,000 *********** $11,593,542 ======== ===================== ===================== ====================================== LIFE ON WHICH DEPRECIATION IN LATEST STATEMENT OF ACCUMULATED DATE OF DATE OPERATION IS DESCRIPTION DEPRECIATION CONSTRUCTION ACQUIRED COMPUTED - ------------------------ ------------ ------------------------------------------------ RENAISSANCE PLACE-KATY $1,848,908 1984 05/01/88 5 TO 30 YEARS RENAISSANCE PLACE-HUMBLE 1,634,501 1987 05/01/88 5 TO 30 YEARS ---------- $3,483,409 ==========
(A) The initial cost to the Partnership represents the original purchase price of the properties. (B) The aggregate cost of real estate owned at December 31, 1994 for Federal Income tax purposes was approximately $11,593,542. (C) Reconciliation of real estate owned at December 31, 1995, 1994, and 1993:
1995 1994 1993 ------------ ----------- ----------- Balance at beginning of period $11,292,495 $10,939,816 $10,875,195 Additions 301,047 352,679 64,621 Reductions 0 0 0 ----------- ----------- ----------- Balance at end of period $11,593,542 $11,292,495 $10,939,816 =========== =========== ===========
(D) Reconciliation of accumulated depreciation: Balance at beginning of period $3,038,503 $2,594,737 $2,171,237 Depreciation expense 444,906 443,766 423,500 Reductions 0 0 0 ---------- ---------- ---------- Balance at end of period $3,483,409 $3,038,503 $2,594,737 ========== ========== ==========
F-38 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED FINANCIAL STATEMENTS OF MEDICAL INCOME PROPERTIES 2A LIMITED PARTNERSHIP FOR THE YEAR ENDED DECEMBER 31, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. YEAR DEC-31-1995 JAN-01-1995 DEC-31-1995 889,401 2,161,755 2,825,075 190,934 0 6,281,573 19,262,752 5,868,721 25,186,114 2,706,162 3,903,921 0 0 0 16,260,045 25,186,114 0 19,049,677 0 17,108,449 337,535 0 419,354 1,184,339 0 0 0 0 0 1,184,339 0 0 5.02 (31) REPRESENTS TOTAL PARTNERSHIP CAPITAL INCLUDING NET INCOME OF DISTRIBUTIONS.
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